Genetic algorithm explains wild exchange rate fluctuations, mimicking real-world chaos.
Exchange rate volatility is hard to explain, so scientists used a genetic algorithm to model how traders make decisions. They found that traders use a mix of technical and fundamental trading rules, adjusting them with a genetic algorithm. The model showed that exchange rates circle around a fundamental value without converging, leading to high volatility. The dynamics can even be chaotic, and adding random shocks mimics real-world exchange rate fluctuations accurately.